Pitched battles raged between Israeli forces and Hezbollah terrorists on the border Thursday, and Israel warned hundreds of thousands of people to flee southern Lebanon "immediately," preparing for a likely ground offensive to set up a buffer zone.

U.N. chief Kofi Annan warned of a humanitarian crisis in Lebanon and called for an immediate cease-fire, even as he admitted "serious obstacles" stand in the way of even easing the violence. Annan denounced Israel for "excessive use of force" and Hezbollah for holding "an entire nation hostage" with its rocket attacks and snatching of two Israeli soldiers last week.

As the death toll rose to 330 in Lebanon as well as at least 31 Israelis, Lebanese streamed north into the capital and other regions, crowding into schools, relatives' homes or hotels. Taxi drivers in the south were charging up to $400 per person for rides to Beirut — more than 40 times the usual price. In remote villages of the south, cut off by strikes, residents made their way out over the mountains by foot.

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The price of food, medical supplies and gasoline rose by as much as 500 percent in parts of Lebanon on Thursday as Israel's relentless bombardment destroyed roads, bridges and other supply routes. The World Food Program said estimates of basic food supplies ranged from one to three months.

On a day that saw U.S. Marines return to Lebanon for the first time in 22 years, the war looked ready to expand dramatically. Neither side showed any sign of backing down. Hezbollah refused to release its two Israeli soldiers without a prisoner exchange, Israel was aiming to create a new buffer zone in a region that saw 18 years of Israeli presence ending in 2000.

Hezbollah leader Sheik Hassan Nasrallah shrugged off concerns of a stepped-up Israeli onslaught, vowing never to release two Israeli soldiers captured by his guerrillas even "if the whole universe comes (against us)." He said they would be freed only as part of a prisoner exchange brokered through indirect negotiations.

He spoke in an interview with the Al-Jazeera news network taped Thursday to show he had survived a heavy airstrike in south Beirut that Israel said targeted a Hezbollah underground leadership bunker. The guerrillas said the strike only hit a mosque under construction and no one was hurt.

The United States — which has resisted calls to press its ally Israel to halt the fighting — was sending Secretary of State Condoleezza Rice to the region, arriving in Israel on Tuesday or Wednesday after stopping over in Arab nations, Israeli officials said. They spoke on condition of anonymity because the schedule was not yet confirmed.

The mission would be the first U.S. diplomatic effort on the ground since the Israeli onslaught against Lebanon began nine days ago.

Israel has decided air power alone will not be enough to drive Hezbollah back from the Israeli-Lebanon border and that a ground force will be needed to establish a zone that is at least 20 miles deep, senior military officials said Thursday. That would force Hezbollah behind the Litani River.

Israel wants to send a strong message to all its enemies, especially Iran, that the consequences of attacking the Jewish state will be unbearable.

But mounting civilian casualties and the displacement of hundreds of thousands of Lebanese could limit the amount of time Israel has to achieve its goals, as international tolerance for the bloodshed and destruction runs out.

Lebanese Prime Minister Fuad Saniora put the death toll at more than 330 — at least 11 of them killed Thursday — with 1,100 wounded. At least 31 Israelis have been killed, including 16 soldiers — two of them killed in Thursday's fighting.

The U.N. estimated that about a half-million people have been displaced in Lebanon, with 130,000 fleeing to Syria and about 45,000 believed to be in need of assistance.

More than 600 relatives of U.N. peacekeepers and other foreigners were evacuated by ship from the southern port city of Tyre, a region south of the Litani that has seen a ferocious pounding by Israeli warplanes and gunboats for days. Many of the women and children had spent the night on the beach waiting for the ship that arrived Thursday morning and took them to Cyprus.

The exodus of Americans and other foreign nationals stepped up dramatically, with ships lining up off Beirut to take thousands of families waiting at the port out of the war zone.

A group of around 40 U.S. Marines hit the ground in Beirut, helping in the evacuation of hundreds of Americans to a Navy transport vessel, the USS Nashville, offshore — the first U.S. military deployment in Lebanon in 22 years. More than 2,200 Americans were pulled out Thursday, twice the number a day before.

Two large explosions shook south Beirut late Thursday in new Israeli strikes on the Shiite Muslim Hezbollah's stronghold. During the day, Israeli strikes pounded villages and towns in the Shiite heartland of the south and the eastern Bekaa Valley.

Hezbollah, in turn, fired more than 40 rockets into northern Israel.

The clashes about a mile inside the Lebanese side of the border Thursday evening came when an Israeli patrol sweeping for Hezbollah bunkers was ambushed by guerillas, taking casualties. The fight rapidly expanded, with Israeli helicopters firing missiles at targets on the ground and rescue force storming in.

The Israeli military said two Israeli soldiers died in the fighting and several guerrillas were killed. Hezbollah's Al-Manar television said three Israeli soldiers were killed but did not mention guerrilla casualties.

Two Apache attack helicopters crashed in northern Israel near the Lebanon border early Friday, injuring four soldiers, the Israeli military said. Al-Jazeera reported that four soldiers were killed in the crash, but did not give a source.

Israel has stepped up its small-scale forays over the border in recent days, seeking Hezbollah positions, rocket stores and bunkers. Each time it has faced tough resistance from the guerrillas.

In preparation for a more powerful punch deeper into Lebanon, an Israeli military radio station that broadcasts into the south issued what it called "a strict warning" that Israeli forces would "act immediately" to halt Hezbollah rocket fire.

"It will act in word and deed inside the villages of the south against these aggressive terrorist acts. Therefore all residents of south Lebanon south of the Litani must leave their areas immediately for their own safety," the message in Arabic on the Al-Mashriq station said.

More than 300,000 people are believed to live south of the Litani — which twice has been the border line for Israeli buffer zones. In 1978, Israel invaded up to the Litani to drive back Palestinian guerrillas, withdrawing from most of the south months later.

Israel invaded Lebanon again in a much bigger operation in June 1982 when its forces seized parts of Beirut. It eventually carved out a buffer zone that stopped at the Litani. That zone was reduced gradually but the Israeli presence lasted for 18 years until 2000, when it withdrew its troops completely from the country.

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